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Dell Servers, Services Sales Soar

By Christopher Saunders (Send Email)
Posted Aug 19, 2010


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Surging enterprise and public-sector demand for Dell's servers, storage and networking components propelled second-quarter sales at the No. 3 PC maker up 22 percent from a year ago, enough to top Wall Street's quarterly revenue and earnings estimates. The company credits its strong quarter to a continuing corporate system refresh cycle and surging demand for IT services.

For its second quarter of fiscal 2011, Dell (NASDAQ: DELL) said sales totaled $15.5 billion, beating analysts' revenue estimates of $15.2 billion, according to Thomson Reuters data. Earnings before one-time charges came in at $0.32 per share, ahead of Wall Street consensus of $0.30 per share.

On a GAAP basis, income came in 16 percent higher than a year earlier, at $545 million, or $0.28 per share.

Dell credited the strong performance to a variety of factors, including a continuing corporate refresh cycle that helped cushion slow growth in its consumer business.

The company said overall revenues from its server and networking lines jumped 35 percent, with blades showing particular growth.

Storage also saw a healthy increase, rising 13 percent, with Dell's EqualLogic storage products proving especially hot, with revenue growing 63 percent.

Recent weeks have seen Dell moving to capitalize on mounting demand in storage with several acquisitions. Dell snapped up storage technology vendor 3PAR for $1.15 billion earlier this week. In late July, it bought Ocarina Networks, a player in storage deduplication.

Services also continues to be a major source of growth for Dell, as it has generally proven for rivals like HP (NYSE: HPQ). Dell said its services revenue increased 57 percent during the quarter to $1.9 billion -- sales that include the contribution of Perot Systems, which Dell acquired for $3.9 billion last year.

Mobile and desktop PCs also saw healthy growth, thanks to corporate IT efforts to refresh old systems, Dell said. The company said its mobility products saw 21 percent revenue growth over last year, while desktops jumped 17 percent.

Enterprise, Public Sector IT spending surge

While Dell's consumer group raked in $2.9 billion -- essentially flat from a year ago, and yielding a small operational loss -- spending among deep-pocketed enterprise IT departments and public-sector health care and life sciences customers skyrocketed.

In particular, the company's Large Enterprise segment customers spent a total of 38 percent more with Dell than they did a year ago, pushing revenues for the category to $4.5 billion. Within that customer group, Dell said sales of servers, services and mobility each grew more than 50 percent from last year.

Sales of products and services to public-sector clients outstripped even enterprise demand, however, with that segment contributing revenue of $4.6 billion, up 21 percent. With state and local government sales remaining nearly flat, a large chunk of that increase came from health care customers. Services proved especially strong in the category, with revenue increasing more than 100 percent from a year earlier, Dell said -- though those results again factor in Perot Systems revenue.

Small and midsized businesses also upped their spending with Dell. The company's SMB group saw strong increases, with revenue rising 25 percent to $3.5 billion. Sales of Dell SMB mobility products grew 32 percent, while desktop PC sales increased 29 percent from a year ago. SMB servers and networking offerings raked in 28 percent more revenue, while storage sales increased 22 percent.

Dell said demand for its products and services proved generally strong worldwide. Some areas saw tremendous growth, however, such as the company's business in emerging regions like Brazil, Russia, India and China. While the so-called BRIC countries accounted for only 12 percent of Dell's overall quarterly revenue, sales there grew 52 percent from a year ago, it said.

The company also said revenue from its Asia-Pacific and Japan group grew 38 percent, while the segment comprised of Europe, the Middle East and Africa (EMEA) rose 24 percent.

Growth in sales within the Americas trailed behind, with an increase of 17 percent. However, the U.S. still accounts for the bulk (53 percent) of Dell's revenue -- though not by much.

Dell said that it ended the quarter with $13.1 billion in cash and investments, after cash flow from operations totaling $1.3 billion.

The company also said it doesn't see the corporate client refresh petering out for at least several more quarters, while it also expects federal government sales and commercial sales to grow slightly.

For the full year, Dell gave guidance of revenue growth between 14 percent to 19 percent, while earnings before one-time charges could rise 18 percent to 23 percent.

Christopher Saunders is senior managing editor at InternetNews.com, the news service of Internet.com, the network for technology professionals.

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